Salt & Light Development Inc. And Another v Sjtu Sunway Software Industry Ltd

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J U D G M E N T

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1. In these 2 appeals from a decision of Master Kwan ordering that 6 interrogatories be answered by a named director of the Plaintiffs, the parties have sensibly agreed that the outcome of the appeal in HCA 2939/04 must be identical to that in the conjoined appeal HCA 2992/04. In those circumstances it was further agreed that HCA 2939/04 would be exclusively considered, the interrogatories being identical in both actions.

Background : Factual Context

2. By a Deed dated 23 August 2004 Salt & Light Development Inc. (1^st Plaintiff) and Exclusive Investments Limited (2^nd Plaintiff) agreed to sell and Sjtu Sunway Software Industry Limited (Defendant) agreed to purchase 100,000 shares, as to 90,000 shares thereof held by the 1^st Plaintiff and 10,000 shares held by the 2^nd Plaintiff, in the capital of Beauhorse Professional Translation Limited (“Beauhorse”), being the entire issued share capital of Beauhorse. Beauhorse was incorporated in Hong Kong in 1990 and was in business in Hong Kong and in Shenzen, China. It is what occurred in China that is the sole focus of this litigation.

3. Before me the parties agreed that a crucial issue, if not the decisive one at the trial would be the construction of the Deed and a Disclosure Letter of the same date. The Disclosure Letter, was formally adopted by the parties as an integral part of the Deed. That Letter was created by the Plaintiffs “for the purpose of limiting the scope of the indemnities, representations, warranties and undertakings contained in the Deed including its Schedules”.

4. It suffices for present purpose to note Clause 7 Schedule 3 of the Deed:

“7.Government Licences, Approvals, Permits, etc.

The company [Beauhorse] has at all relevant times maintained in force all such government licences, registrations, approvals, permits, qualifications and other authorisations as may be required by it for the purpose of carrying on its business as at the date hereof. The Company has complied in all respects with the terms and conditions of such licences, registrations, approvals, permits, qualifications and authorisations.”

5. The other relevant provision is paragraph 10.2 of the Disclosure Letter which provides:

“The Company [Beauhorse] has started its business operation in the PRC while it is still in the process of applications for necessary licences and approvals. The Company is thus facing administrative actions and/or prosecution in the PRC, as evidenced in the following documents”.

6. There follows a reference to 2 documents, both dated 22 April 2004, from the Shenzen Administrative Bureau of Industry and Commerce (“SABIC”), referring to its investigation of Beauhorse for unlawfully carrying on a business without a business licence.

7. The Defendant's case is that by the Deed and Disclosure Letter the Plaintiffs falsely represented and falsely warranted the position, as Beauhorse had never submitted any application for the necessary licences or approvals before the Plaintiffs entered into the Deed. In addition, it is argued that Beauhorse was not just in default for having no business licence, but it also, for example, had not submitted any application for tax registration, filed any audited accounts and tax returns to the PRC authorities, nor paid any business tax or social security funds, as required by Chinese law.

8. The Plaintiffs' case is the denial of any breach, in the alternative if there was a breach that the Defendant had waived it and further that the Defendant was in any event estopped from alleging misrepresentation and/or breach of warranty. The Plaintiffs have sued for non-performance on the basis that the Defendant’s rescission was baseless.

9. The original completion date was 22 October 2004, however the Defendant requested that the completion date be extended to 23 December 2004. Upon that date the Defendant did not complete. The Plaintiffs’ action followed and the Defendant initially pleaded misrepresentation as its sole defence but by an Amended Defence introduced 9 months later a specific plea of breach of the contractual warranties was added. The Defendant has without an order required the Plaintiffs to answer 6 interrogatories, to which the Plaintiffs continue to resist: O26 r3.

Interrogatories: The Key Provision

10. The key provision to O26 RHC dealing with interrogatories is O26r1(1) which establishes that only interrogatories

“…which are necessary either –

(a) for disposing fairly of the cause or matter; or

(b) for saving costs”

shall be allowed. This overarching provision applies to both forms of interrogatories, those without an order and also ordered interrogatories: see O26 r1(5).

11. In Baronness Dunn v Li Kwok Po David [1994] 2 HKC 597, 600F Barnett J in relation to O26 r1(1)(b) decided, correctly in my respectful judgment, that it was not for the interrogator to have to establish that irrespective of the content of the forthcoming answer that costs must be saved. In rejecting that submission be tellingly stated:

“An answer favourable to the interrogator would have to be a foregone conclusion. It would require a degree of prescience that would put the proprietors of Happy Valley and Shatin out of business. I am quite satisfied that what was intended and what has been achieved by the amendments to O26 r1 is that the party seeking to interrogate must show that the interrogatory is necessary “if costs are to be saved”. Put another way, “if any saving of costs is to be achieved”.”

12. In Lee Nui Foon v Ocean Park Corporation (No 2) [1995] 2 HKC 395 Cheung J (as he then was) helpfully summarized the general principles applicable to interrogatories. Cheung J at p 398 highlighted that the litigation value of interrogatories is maximized when directed to precise points on which either an admission or information is sought. That is the case here.

13. Both Hunter J in Cocoa Merchants Ltd. v Ferryview Holdings Inc. [1987] HKLR 577, 580 and Cheung J in Lau Tak Wah Andy v Hang Seng Bank Ltd. [2001] 2 HKC 548, 552 quoted with approval the remarks of Lord Esher MR in Marriott v Chamberlain(1886) 17 QBD 154, 163 that:

“The right to interrogate is not confined to the facts directly in issue, but extends to any fact the existence or non-existence of which is relevant to the existence or non-existence of the facts directly in issue”.

14. To this should be added that the relevance of an interrogatory is to be judged not only by reference to the case of the party putting forward the question, but also from the perspective of the case of the opponent. An interrogatory which is relevant to weakening the opponent’s own case is indistinguishable in principle from one seeking to affirmatively advance the interrogator's own case: see Plymouth Mutual Co-operative and Industrial Society Limited v Trader's Publishing Association Limited[1906] 1 KB 403, 417 (CA).

15. This comports with the approach of Lord Finlay LC in Blair v Haycock Cadle Co.(1917) 34 TLR 39 (HL) that if the answer to an interrogatory might form a step in establishing liability it was sufficient justification for its invocation. Therefore whether a conclusive or definitive response to an issue might emerge from answers to interrogatories, was not a criterion in evaluating their validity.

“It was enough that they should have some bearing on the question and that they might form a step in establishing liability.”

16. Lord Haldane at p 40 was to the effect that while an answer to one interrogatory might appear to produce a result insubstantial in itself, yet a series of answers might well produce a valuable coherent significance, that would show they were “necessary”.

17. While the prospect of minor incremental advances being established by the answers may suffice, the less an interrogatory appears to be targeted to the core issues in the proceedings the more likely a Court will be to exercise an adverse discretion to its employment. Otherwise the civil justice system would be wrongly encouraging “unnecessary” interrogatories in breach of O26 r1, “as a source of ammunition to be routinely discharged as part of an interlocutory bombardment pending the main battle”: per Sir Thomas Bingham MR in Hall v Sevalco Ltd.[1996] PIQR 344, 349 (CA).

18. In my judgment the correct test to apply, when the opposition to interrogatories is, as here, that the answer to them already exists in the pleadings, witness statements etc, is the approach of Colman J in Det Danske Hedeselskabet v KDM International Plc [1994] 2 Lloyd’s LR 534, 537:

“Fifthly; requests for information ascertainable by cross-examination at the trial are inappropriate unless the party questioning can establish that it is essential for the proper preparation of his case that such information is made available to him before trial, in the sense that if...